Accounts payable (AP) leaders have heard it all.
These unflattering descriptions of the AP function speak to the costly and inefficient way that most departments have historically gone about processing inbound invoices and paying suppliers.
In fact, controllers surveyed by the Institute of Finance and Management (IOFM) labeled AP as the most costly, labor-intensive, and time-intensive finance and administration (F&A) function.
But it doesn’t have to be this way.
Forward-thinking AP leaders are transforming the function into an income-generating machine.
And they are doing it by rethinking the way that their department pays its suppliers.
The volume of payments that businesses make electronically to their suppliers has increased by seven percentage points since the start of the pandemic, and four percent of businesses have quit cutting checks altogether, IOFM finds. Until recently, about half of all B2B payments were made via check.
Paying suppliers electronically provides businesses of all sizes with compelling benefits:
But the most tantalizing benefit of paying suppliers electronically is how it can generate income.
Businesses can free up lots of cash with electronic payments. Here’s how:
Day’s Payable Outstanding
Paying suppliers with virtual cards enables businesses to better manage cash by extending their Day’s Payable Outstanding (DPO), without impacting their existing terms with payment recipients.
Cash-Back Rebates
Businesses can earn cash-back rebates based on the amount of spend they pay with a virtual card. And when you consider that payments to supplies, utilities and most other expenses can be made with a virtual card, a business could potentially earn sizeable cash-back rebates from cards.
Early Payment Discounts
Most suppliers are willing to exchange a discount on the amount due on an invoice for accelerated payment. The earlier the payment, the bigger the discount. With the average early payment discount standing at 2 percent, it doesn’t take long for an AP department start delivering value to the business.
Better Cash Forecasting
The smart financial insights provided by an electronic payment solution enables CFOs and other senior financial executives to better manage their company’s cash. Graphical dashboards display cashflow metrics in real-time. Drill-down capabilities help CFOs identify trends and uncover the source of cashflow issues. And mobile access ensure that CFOs always stay in the loop.
Every business is looking for ways to free up cash on its existing revenue base. Paying suppliers electronically via ACH and virtual card can help transform AP into an income-generating machine.
Interested in reading more about payments? Check out our recent blog post, How To Deliver Value through Better Payments and Cash Flow Management.